Crypto Staking Guide
Crypto staking is a popular way for investors to earn rewards, but it's complicated for beginners. We're looking at all you need to know about crypto staking. 🤑
Tl;dr
Crypto staking refers to Proof of Stake consensus mechanisms for blockchains.
Stakers lock up their cryptocurrency to help secure the network and validate transactions.
Once transactions are confirmed, a new block is added to the blockchain.
Stakers are rewarded with additional coins as an incentive for their participation.
Learn about crypto staking taxes.
What is crypto staking?
If you know how Bitcoin works, you’re probably familiar with Proof of Work (PoW). It’s the mechanism that allows transactions to be gathered into blocks. Then, these blocks are linked together to create the blockchain. More specifically, miners compete to solve a complex mathematical puzzle, and whoever solves it first gets the right to add the next block to the blockchain. There are quite a few issues that have arisen as a result of PoW blockchains, including:
The amount of energy used to run mining equipment.
The resources needed to build mining equipment are needed for other industries like healthcare, IT, and the automotive industry.
Mathematical limits on scalability.
Slow transaction speeds and expensive fees.
Increased competition in proof-of-work blockchains has led to lower rewards.
So what's the alternative?
Enter Proof of Stake (PoS).
Instead of PoW, some cryptocurrencies use a PoS consensus mechanism. Some popular examples of PoS blockchains include:
Ethereum (ETH) - as of September 15, 2022.
Cosmos (ATOM).
Cardano (ADA).
Avalanche (AVAX).
Polkadot (DOT).
Solana (SOL).
Tezos (XTZ).
In a PoS consensus mechanism, you ‘stake’ your crypto to earn a reward. Staking serves a similar function to mining - a network participant gets selected to add the latest batch of transactions to the blockchain and earn crypto in exchange. The network chooses validators based on the size of their stake and the length of time they’ve held it - so the most invested participants are rewarded.
Staking through PoS helps secure the blockchain - by staking, you are part of the process of creating new tokens.
Read next: the best crypto coins to stake in 2025
Crypto staking terminology
Knowing the key terms related to crypto staking will help you understand the staking process:
Stake: The amount of cryptocurrency you lock up to participate in the staking process.
Validator: A network participant responsible for verifying transactions and adding them to the blockchain.
Delegation: Assigning your stake to a validator, allowing them to stake on your behalf while you still retain ownership of the assets.
Slashing: A penalty applied to validators for misbehaving or failing to properly validate transactions. This can result in the loss of a portion of the staked assets.
APY (Annual Percentage Yield): The rate of return you can expect from staking, typically shown as a yearly percentage.
Unstaking period: The time it takes to withdraw your staked crypto after deciding to stop staking. Some networks have fixed lock-up periods.
Liquidity staking: A method that allows you to stake your assets while retaining liquidity through derivative tokens that represent your staked position.
Compound staking: The process of automatically reinvesting staking rewards to increase the overall stake and potential future rewards.
How do you stake crypto?
There are four main ways to stake:
Running a validator node
Delegating using a non-custodial wallet
DeFi staking protocols
Centralized staking products
This is easiest to understand with examples, so we'll use Ethereum as an example.
With Ethereum, you can solo stake as a validator if you have 32 ETH and the right software and hardware. Alternatively, you can delegate your ETH to a validator node using a non-custodial Ethereum wallet. You can also use a decentralized staking protocol like Lido or Rocket Pool. Finally, you can stake using a centralized exchange like Binance or Coinbase.
The way you stake matters because in some countries, how staking rewards are taxed depends on whether you're staking directly as part of the PoS mechanism or if you're staking through a third party.
Read next: the best staking platforms in 2025
What is a staking reward?
It's like buying a raffle ticket with crypto. A winner is picked to validate each new block and is paid a reward. The more raffle tickets you buy, the more you might win.
Most of the time, when you stake crypto, you'll be rewarded with new coins or tokens of the same currency. For example, Tezos stakers are paid staking rewards in XTZ, Avalanche takers are paid staking rewards in AVAX, and so on.
What is a staking pool?
A staking pool is when a group of coin holders merge their resources. This consolidation can then allow them to increase their chances of validating blocks and receiving rewards in return. They essentially pool their sources and share in the rewards.
Typically, a staking pool is managed by a pool operator, and the stakeholders that decide to join the pool have to lock their coins in a specific blockchain address (or wallet). While some pools require users to stake their coins with a third party, there are many other alternatives that allow stakeholders to contribute with their staking power while still holding their coins in a personal wallet.
Some of the best staking pools include:
Stakely: Validator node provider offering multiple cryptocurrencies to stake
Lido: Liquid staking DeFi protocol for ETH, MATIC, and SOL
Allnodes: Non-custodial, node-as-a-service platform
Is crypto staking environmentally friendly?
Yes, crypto staking is significantly more environmentally friendly than traditional Proof of Work (PoW) mining.
Proof of Work (used by Bitcoin and some other blockchains) requires miners to solve complex mathematical problems using powerful computers, which consumes vast amounts of electricity. This has raised concerns about the environmental impact of PoW blockchains, as mining operations rely heavily on fossil fuels in many regions.
In contrast, Proof of Stake (PoS) does not rely on energy-intensive computations. Instead of competing to solve puzzles, validators are chosen to verify transactions based on the size of their stake (the amount of crypto they hold and lock up). This eliminates the need for high-powered mining rigs and reduces energy consumption dramatically.
For example, Ethereum's shift from PoW to PoS in September 2022 reduced its energy consumption by over 99.9%.
Pros and cons of staking crypto
| Pros | Cons |
|---|---|
| Earn passive income: Staking allows you to earn rewards on your crypto holdings, similar to earning interest in a savings account. | Lock-up periods: Some staking platforms require you to lock up your funds for a certain period, limiting liquidity. |
| Network security: By staking, you help secure the blockchain network and contribute to its overall stability. | Slashing risk: If a validator misbehaves or fails to meet network requirements, a portion of your staked assets could be penalized. |
| Lower environmental impact: Staking through Proof of Stake (PoS) consumes far less energy than Proof of Work (PoW) mining. | Market volatility: The value of your staked coins can fluctuate, potentially offsetting your staking rewards. |
| No expensive hardware: Unlike mining, staking doesn’t require specialized equipment or high electricity consumption. | Validator dependence: If you delegate your stake to a validator, your rewards depend on their performance and reliability. |
| Compounding rewards: Many staking platforms allow you to automatically reinvest rewards, increasing your future earning potential. | Tax complexity: Staking rewards are often taxed differently depending on the jurisdiction, which can complicate tax reporting. |
What cryptocurrencies can you stake?
Some of the most popular cryptocurrencies you can stake include:
Ethereum (ETH): Ethereum transitioned to PoS in September 2022, allowing holders to stake ETH and earn staking rewards.
Cardano (ADA): Cardano uses a PoS mechanism called Ouroboros, allowing ADA holders to stake directly or through delegation.
Solana (SOL): Solana offers fast transaction speeds and allows SOL holders to stake to secure the network and earn rewards.
Polkadot (DOT): Polkadot uses a nominated PoS (NPoS) system where DOT holders can nominate validators.
Cosmos (ATOM): Cosmos allows staking of ATOM to help secure the network and enable interoperability between blockchains.
Avalanche (AVAX): Avalanche uses a PoS consensus model that lets AVAX holders participate in securing the network through staking.
Tezos (XTZ): Tezos uses a liquid PoS model, where XTZ holders can either stake directly or delegate to a baker (validator).
Polygon (POL): Formerly MATIC, POL can be staked to secure the Polygon network and earn rewards.
NEAR Protocol (NEAR): NEAR holders can stake to support the network and earn staking rewards.
Algorand (ALGO): Algorand uses a pure PoS model that allows ALGO holders to participate in consensus and earn passive income.
Harmony (ONE): ONE holders can stake to help secure the Harmony network and earn staking rewards.
PoS staking vs. DeFi staking
To add some confusion, the phrase staking can actually refer to two different events - staking as part of a consensus mechanism like above or DeFi staking. The distinction between the two matters because it has different tax implications.
DeFi staking refers to locking your coins or tokens in a given DeFi protocol - like a liquidity pool or lending protocol - in order to earn rewards. We can liken DeFi staking to a typical lending arrangement where you provide capital in return for interest. The tax implications when it comes to DeFi staking all come down to how that specific protocol works - but Capital Gains Tax or Income Tax may apply. You can learn more in our DeFi tax guide.
How much can you make staking crypto?
How much you can make from staking crypto depends on several key factors:
Staking rewards (APY): Staking rewards are typically expressed as Annual Percentage Yield (APY) — the percentage return you can expect over a year. APYs vary depending on the cryptocurrency, the network's staking mechanics, and the platform you use. For example, staking Ethereum might earn you between 3% and 6% annually, while Polkadot could offer higher returns around 10% to 14%.
Compounding rewards: Many staking platforms allow you to automatically reinvest your staking rewards. This creates a compounding effect where you earn rewards not only on your original stake but also on the newly earned rewards — increasing your overall returns over time.
Validator fees and network costs: Some staking platforms or validators charge a commission (typically between 1% and 20% of your rewards). Network fees (like gas fees on Ethereum) can also reduce your net returns.
Lock-up period: Some networks require a minimum lock-up period before you can withdraw your staked assets. If the price of the staked asset drops during this period, the loss in value could offset your staking rewards.
Market volatility: While staking generates rewards in the form of tokens, the value of those tokens is subject to market fluctuations. If the token’s price increases, your total returns could grow significantly — but if the token’s value drops, your returns could be reduced or even negative.
Example
If you stake 100 DOT at an average APY of 12%, you’d earn approximately 12 DOT per year (before validator fees and price changes). If the price of DOT rises, your overall return increases, but if the price drops, it could reduce the value of your rewards.
Is crypto staking taxed?
Yes, in most countries crypto staking is subject to tax. You’ll generally pay Income Tax based on the fair market value of your staking rewards in your fiat currency on the day you receive them. However, it’s worth checking out the rules in your country (which you can do in our crypto tax guides) as some countries have different tax treatment depending on whether you’re staking directly as part of a consensus mechanism or using a third-party platform to stake crypto. Learn more in our crypto staking taxes guide.
FAQs
How much does it cost to stake crypto?
The cost to stake crypto depends on the network and the staking method you choose. Some blockchains, like Ethereum, require a minimum stake to run a validator node (32 ETH in Ethereum’s case), which can be expensive. However, many networks allow you to delegate your stake to a validator with no minimum amount, though validators typically charge a small commission on your rewards (often between 1% and 10%). There may also be network fees involved, such as gas fees on Ethereum, which can affect your overall returns.
Is staking cryptocurrency legal?
Yes, staking cryptocurrency is legal in most countries, but the legal status can vary depending on local regulations. In some jurisdictions, staking through centralized platforms might be subject to additional regulations or licensing requirements. It’s important to check the specific laws and tax guidelines in your country before staking.
How hard is it to stake crypto?
Staking crypto can be very simple or more complex, depending on the method you use. Staking through a centralized platform like Coinbase or Binance is straightforward and often involves just a few clicks. Delegating your stake through a non-custodial wallet is also relatively easy, but running your own validator node requires technical knowledge, sufficient hardware, and ongoing maintenance to avoid penalties like slashing.
Can anyone stake crypto?
Yes, most people can stake crypto as long as they hold a stakable asset and have access to a compatible platform or wallet. Some networks have minimum staking amounts or technical requirements for running a validator, but many platforms allow delegation with no minimum investment. However, in some countries, local regulations may restrict access to staking services or require compliance with financial guidelines.
